How to fix the deficit…

Besides all the obvious things (spend less, tax more) and the politics, the real answer is as difficult as it is simple – fix the economy.  In a healthy economy, tax revenues rise (they are at their lowest level in years), more jobs means less unemployment being paid out, and things become much rosier quickly.

 

Should we even have a debt ceiling? I ask this, knowing that some of you are saying “we have to stop spending,” a theme to which I fervently agree. The only thing the debt ceiling really seems to be is an opportunity for the minority party to hold something over the party in charge.  This year has been incredibly venomous and merely sets the stage for the Presidential campaign, and the next time we have to vote again to do this…

 

Here are a few thoughts on the topic of the Debt ceiling from a very interesting article:

However, in 1959, Marshall Robinson of the Brookings Institution came to this conclusion in a book-length study of the debt limit:

On the record, the debt ceiling experiment has failed. Although at times the ceiling has clamped down on government spending, it has not prevented the long-term growth of debt. Indeed, there is some evidence that reactions to its short-run pressure may ultimately contribute to the growth of debt.

 

This fact led Alan Greenspan, then chairman of the Federal Reserve, to recommend abolition of the debt limit in 2003 testimony:

In the Congress’s review of the mechanisms governing the budget process, you may want to reconsider whether the statutory limit on the public debt is a useful device. As a matter of arithmetic, the debt ceiling is either redundant or inconsistent with the paths of revenues and outlays you specify when you legislate a budget.

Mr. Greenspan’s point is crucial: the decision to run a deficit and increase national indebtedness is made by Congress when it votes to cut taxes, create entitlement programs and enact appropriations that will necessarily cause spending to be higher than revenues – not when it raises the debt limit.

As the Congressional Budget Office put it in a 2010 report:

By itself, setting a limit on the debt is an ineffective means of controlling deficits because the decisions that necessitate borrowing are made through other legislative actions. By the time an increase in the debt ceiling comes up for approval, it is too late to avoid paying the government’s pending bills without incurring serious negative consequences.

 

You can read this article “doing away with the Debt Ceiling” here.